Why it doesn’t matter that the gig workforce may be shrinking…

The percentage of Americans working in alternative work arrangements — such as independent contractors, on-call workers, and those who contract through a third party — has shrunk 0.6% since 2005. According to a US Labor Department report, the total of people working in such alternative arrangements now is 10.1%

According to the survey, this change appears to be due to the drop of independent contractors in the workforce, who were at 7.4% of those working in 2005 and now are at 6.9%. The independent contractors are presumed to be taking full-time work in the hot US economy. The 2017 report was based on a survey of more than 60,000 households.[i]

On the surface, this report appears to dim the dramatic predictions of the growth of the gig economy. Upwork, the largest online platform for gig workers, predicted this year that freelancers will become a majority of the US workforce in a decade.[ii]

However, the Labor Department’s survey appears to have limited its counts of gig workers based on how they asked the questions. The survey asked if the respondents worked on a job where they “obtain customers on their own to provide a product or service.” The wording of this question could have excluded workers at Lyft and TaskRabbit who depend on these platforms to find customers. Today’s definition of gig workers should include anyone with or without full or part-time work who uses an app to find full or part-time work, whether or not they are directly finding customers on the app. This would include workers who use Lyft or TaskRabbit to augment other full or part-time work.

Bloomberg quoted Karen Kosanovich, a Labor Department economist who said the survey was “designed to replicate what we have done in the past,” adding that any constraints on the data are the same as in the prior report.[iii] The problem with maintaining this historical definition is that mobile apps on cell phones have proliferated since 2005, as have work apps for gig workers like Upwork.

There are two other interesting storylines here. According to the Labor Department survey, US workers age 55 and older have a bigger share of the independent contractor workforce in 2017 than in 2005, with more than a third of 2017 workers age 55 or older being independent contractors. This age group constitutes about only 25% of the traditional workforce. Second, more than half of contingent workers (temps, on-call workers, and independent contractors) would have preferred a permanent job.

Other recent studies have shown a much higher number of alternative workers. A survey conducted by RAND by Lawrence Katz of Harvard and Alan Krueger of Princeton University found that 15.8% of the US workforce in 2015 were alternative workers, up from 10.1% in 2005. In 2015, only 0.5% of workers were using online apps to find work. For this study, alternative workers were defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers. The percentage of workers hired out through contract companies showed the sharpest rise increasing from 0.6% in 2005 to 3.1% in 2015. In 2015, only 0.5% of workers were using online apps to find work.[iv]

Upwork’s 2017 study estimates that 57.3 million Americans are freelancing (36 percent of the U.S. workforce) and this population contributes approximately $1.4 trillion annually to the economy, an increase of almost 30% over last year. Their study also found that 47% of Millennial workers freelance, more than any other generation. The study reports that freelancers like the freedom and flexibility of freelancing and the ability to earn extra money. They lament the lack of income predictability, the difficulty in finding work and the absence of benefits. Without improvements on these issues, the gig economy will hit a wall and not become a majority of the workforce.

So, while the Department of Labor data finds that Baby Boomers are increasing their numbers of independent contractors, the Upwork survey finds that Millennials are leading the way in using apps to find work.

Why the alternative worker trends do not matter?

When I worked in the Aerospace business of Honeywell Inc. I put in place policies and procedures that allowed the use of independent contractors and temps for up to 33% of the workforce, but these workers could not work for the company for more than a year, without being reviewed for up to another year’s work. This policy allowed us to increase the use of our engineering and technician workforce for innovations and then to reduce the temp and contractor workforce when the innovation projects were completed, avoiding the cost and publicity of layoffs. It also provided employment stability for our traditional workforce. This was in 1999.

Today, some large companies have more than 50% of their workforce as alternative workers. However, the laws governing alternative work from 1999 to now have not changed much. Then and now, federal law has a multiple-point checklist to determine who is or who is not a regular employee. Basically, if a worker reports to a place of work, their work is controlled by company managers and policies, is paid hourly, and they use company equipment, such as computers, and they don’t work for others doing the same type of work, they should be considered an employee, especially if the worker is at the company for a year or more.

Back in the early 1999, the policies I put in place at Honeywell were a reaction to a class-action lawsuit by Microsoft temporary workers suing the company for violating US labor law by using their services for years as temps (not regular employees) and avoiding the lucrative stock, medical and retirement benefits that went to regular employees. The temps’ won the eight-year class action lawsuit in 2000, and Microsoft was required to pay them $97 million.[v]

Again, these laws are in place today. With the growing concern about the loss of real wages and benefits among the American worker, I predict these laws will get stronger. Uber and Lyft have learned the hard way, from lawsuits or settlements, that even contractors, temps, and gig workers have rights, especially when they are used in circumstances that define them as regular workers under the law.

Some advocate that these laws should be changed. Maybe, but the larger issue is the loss of real wages and benefits of the US worker. Labor shortages are forcing companies to raise wages and benefits as companies compete for too few workers in the surging US economy. But if the wages don’t meet expectations, workers have other employment choices, can sue companies when their rights are violated, or vote in lawmakers who will better protect their interests. All these scenarios are bad ones for employers.

The smart use of alternative workers should be part of your talent strategies

Should you use temps, contractors, and gig-workers? It all depends on your values, purpose, business model, strategies, and how much legal risk you want to take on. Every talent strategy begins with aligning the company’s workforce to its purpose and values and to efficiently execute its business strategies. Every company needs to have an employer brand and a value proposition for the labor force. All talent strategies should include the smart use of contractors, temps, and gig workers to augment their regular workforce—and that don’t run afoul of the law or attract lawsuits, fines and the loss of good faith that goes with bad publicity.

There are many great scenarios for the use of alternative workers to augment your regular workforce, as in the Honeywell Inc. strategy, I outlined above. Another scenario is that in this tight labor market when open jobs outnumber the unemployed, contractors and gig workers may be an excellent source of talent to augment your traditional workforce or for specialties you don’t need to have available full-time.

You can ignore the debate over the number of alternative workers and the future of the gig economy. The important questions are “What is your talent strategy?” and, “How do you attract a workforce, and align your workforce to the values and purpose of your company?”

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults and provides “hands-on” support for global talent strategies, developing innovative cultures, agile leaders and teams, and other strategic initiatives. Contact Victor Assad at VA@VictorHRConsultant.com. Visit http://www.victorhrconsultant.com for his valuable free reports.